The legendary stability of the Swiss banking system was shaken in 2008 when the government had to intervene in October with a package of nearly $60 billion to rescue the country’s biggest bank, UBS AG. Both UBS and the second largest bank, Credit Suisse, were hard hit by bad loans originating in the United States. UBS Chairman Marcel Ospel resigned in April after the bank reported a first-quarter net loss of 12 billion Swiss francs (about $12 billion). The other 300-odd banks in Switzerland were less affected, thanks to strong deposits. With a high rate of gross national savings—more than one-third of GDP—the Swiss economy looked set to weather the global economic turmoil better than many European neighbours.

Switzerland also continued to thrive owing to its nonmembership in the European Union. The Lake Geneva area in particular used tax incentives and other perks to entice American multinationals seeking a European base, to the frustration of the EU and of local Swiss residents who faced an acute lack of affordable housing because of the influx of Americans. The government defended banking-secrecy laws against EU attempts to uncover the identity of tax evaders who had stashed their money in Swiss accounts, but Bern continued to hand over “ill-gotten gains” from dictators and other corrupt foreign officials, including $74 million paid to the Mexican government from bank accounts linked to the brother of former Mexican president Carlos Salinas de Gortari.

Switzerland’s consensus style of governance became more harmonious after the December 2007 ouster of Christoph Blocher of the right-wing Swiss People’s Party (SVP) from the ruling four-party coalition. The SVP—which won the most votes in the 2007 general election—was left without a seat in the seven-member cabinet until December, when a close Blocher ally was narrowly elected. The SVP agitated from the sidelines, backing referenda, such as one to ban the construction of minarets from Islamic prayer houses. Voters in June rejected proposals by the SVP to make it harder for foreigners to gain citizenship. A November referendum backed government proposals for a permanent program to distribute controlled quantities of heroin at approved centres to 1,300 addicts who had failed other therapies. The heroin scheme started as an experiment in 1994 and had helped rehabilitate addicts and cut crime, as addicts no longer needed to steal to finance their habit.

Finance Minister Hans-Rudolf Merz, who was due to take over the rotating presidency in 2009, suffered a serious heart attack in September. Defense Minister Samuel Schmid announced his resignation, ostensibly on health grounds. He came under pressure after he lost his power base by leaving the SVP. The parliament rejected Schmid’s proposals for an armaments package, and he was accused of having covered up allegations of sexual harassment against armed forces chief Roland Nef, who resigned in July. The head of the Swiss air force also quit after five airmen drowned during a team-building exercise in June.

A Swiss energy company and Iran’s state-owned National Iranian Gas Export Co. in March signed a multibillion-dollar deal for the provision of natural gas. This prompted protests from the World Jewish Congress that Iran might use the funds to buy weapons for use against Israel. The U.S. also voiced concern, but the Swiss government replied that it was a neutral country with an independent foreign policy.

Libya halted oil shipments and withdrew its money from Swiss banks in fury at the July arrest of Muammar al-Qaddafi’s son at a luxury Geneva hotel on allegations that he had beaten two servants. Hannibal al-Qaddafi returned home after his release on bail, but the incident fueled a diplomatic crisis.

The art world was rocked in February when four Impressionist paintings (by Monet, van Gogh, Cézanne, and Degas), with an estimated value of 180 million Swiss francs (about $163 million), were stolen from a Zürich art gallery. The Monet and van Gogh paintings were recovered within days.

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...nationalized the bank’s Dutch holdings. Germany’s federal government rescued a series of state-owned banks and approved a $10.9 billion recapitalization of Commerzbank. In the banking centre of Switzerland, the government took a 9% ownership stake in UBS. Credit Suisse declined an offer of government aid and, going the way of Barclays, raised funds instead from the government of...